Global News

This article first appeared in Daily Business Review on March 9, 2022.

As it does every year, Transparency International released the Corruption Perceptions Index (CPI), which revealed that the fight against corruption is stagnant worldwide, with little or no progress in the last 10 years. This grim scenario was exacerbated by the pandemic, which led to relaxing controls and increase procurement via direct deals. Countries such as Venezuela, Nicaragua, Honduras and Haiti are among the Latin American countries with the worst ranking for corruption perception issues.

This is alarming news for U.S. corporations with subsidiaries in Latin America. It is a matter of concern for in-house counsels, corporate leaders and board members of these organizations because when the fight against corruption does not gain ground, employees are more exposed to bad practices that can cause severe corporate damage, both in terms of reputation (because of media exposure) and finances (because of fines and litigation).

The solution, which is usually the responsibility of the senior management of the company, is to invest in comprehensive preventive measures that apply to every member of the company and go beyond a plan written on a piece of paper. In my 12 years of monitoring compliance programs for companies with operations in Latin America, I have seen multinationals struggle to implement their compliance programs. The most common pitfalls corporations make are:

Lack of Focus on Global Law

Companies’ preventive measures must have a global focus, looking not only at local regulations but also at the laws of each country with which they have commercial ties. U.S. companies with subsidiaries in Latin America have a duty to know the reality of the region. For example, the Foreign Corrupt Practices Act (FCPA) penalizes individuals and subsidiaries that bribe public officials, whether directly or indirectly and regardless of where they are located. While this is one of the most important and rigorous anti-corruption laws in the world, the FCPA is just one part of a comprehensive preventative framework.

Lack of a Culture of Integrity
Compliance with the law must be accompanied by a culture of integrity that permeates each company’s department. According to the World Economic Forum report “Good intentions, Bad outcomes?”, a strong internal company culture of integrity is the key to making it easier for employees to behave ethically. Ethical behavior needs to be at the heart of a business operation.  This culture must start with the recognition of the good intentions of its employees. As a monitor of corporate compliance programs, we have learned that the company culture must consider the ‘gray’ areas that employees constantly face, which, if not properly addressed, can lead to an entire company being involved in a corruption scandal. To this end, individuals’ ethics and cognitive biases must be considered, training employees not only on the law but also on ethical dilemmas in actual situations that they may face within the company.
At the same time, ethical behavior incentives provided to members of the company must have a long-term perspective, preventing people with good intentions from diverting their objectives for short-term profits. In creating these incentives, the board of directors plays an essential role as leaders of the company, guided by ESG criteria (with a special focus on G for Governance) to work towards the integrity and sustainability of its stakeholders.

Lack of Whistleblower Infrastructure
The culture of integrity also involves fostering emotional safety to encourage employees to report dangerous practices without fear and implementing anonymous reporting channels to do so. Acts of corruption often remain hidden because employees do not dare to report them. That is because of various factors, including the lack of a genuine commitment by the company to promote these channels, or the provision of insufficient guarantees for the whistleblowers against retaliation. Often they don’t trust their claims will be investigated, especially if the accused is a supervisor. Also, many companies do not allow anonymous tips, which hinder reporting and make follow-up difficult. In highly hierarchical cultures, the fear of speaking up prevails, paving the way for the corrupt.

Lack of Compliance Monitoring
Monitoring the implementation of the compliance program is essential to preventing and detecting poor practices. Monitoring creates evidence that a company is doing its best to fight corruption and promote transparency. The evidence will help a company plan to cure the problem but also create documentation to build a solid defense in the event of being involved in an act of corruption.
For this reason, the role of compliance officers is fundamental, and it is essential they have their own department, where they can act with complete autonomy, ensure a culture of integrity, and identify and manage risks. Unfortunately, a common problem that we find is that many companies do not have a department and therefore assign the responsibility for compliance to other areas, such as Human Resources or Auditing, where no one individual is dedicated exclusively to compliance.

Lack of Due Diligence
A big problem in Latin America is that many executives belong to the same social circles, where they all know each other and base their business on the trust derived from their social network. However, it is essential that there is exhaustive and wide-ranging due diligence in every process and step they take – including contracting suppliers and employees, and signing agreements with potential partners – in order to avoid future risks of corruption. This is especially important today, where the increase in drug trafficking in regions like Latin America can make it easier for companies to find themselves unknowingly involved in crimes such as money laundering. Companies are exposed to endless risks, which, if not analyzed with proper seriousness, can affect the health of the business and cause irreparable damage to the reputation they have worked to build.

In conclusion, based on my experience, complying with the law and having policies for the control and prevention of corruption does not guarantee effectiveness. It is useless for compliance programs to exist on paper if a company cannot implement control measures to avoid these pitfalls.

When a company becomes the subject of a corruption investigation, investigators will look at the actions a company took to keep corruption at bay to determine its culpability. Avoiding these mistakes can avoid many headaches for corporate counsels, senior executives and board members of multinational companies doing business in corruption-prone countries.

Susana Sierra, chief executive officer of BH Compliance, is a Chilean businesswoman and entrepreneur, recognized in the compliance industry for her work and professional experience in integrity, anti-corruption, transparency, development of organizational culture, and implementation and the promotion of good practices within companies.